Suppose that the U.S. Boeing Corporation has just exporteda Boeing 747 to BritishAirways and billed 10 million, payable in one year. At the same time, the corporation has also

imported severalkey components for manufacturing the airplanes from Germany and has been billed 10 million, payable in one year. The Assistant Treasurer at the Corporation

oversees findingways to hedge its foreigncurrency risk of British poundsand euros. Lately, the pounds and euros are very volatile against U.S. dollars. He is considering forward, money market, and optionshedge. The AssistantTreasurer just finished collecting the spot, forward, and currency options quotes from the Bloomberg terminal, which are as follows:

Exchange Rates:
Spot exchange rate($/)	1.50
Spot exchange rate($/)	1.20
Forward exchange rate ($/) 1 year	1.46
Forward exchange rate ($/) 1 year	1.18

Money Market Rates:
	Bid (%)	Ask (%)
U.S. interest rate(per annum)	6.10	6.12
U.K. interest rate(per annum)	8.87	9.00
German interest rate(per annum)	8.00	8.05

Options Markets:	Call options ($/)		Call options($/)
	Strike	Bid	Ask		Strike	Bid	Ask
	1.30	0.040	0.041		1.00	0.035	0.040
	1.40	0.031	0.034		1.10	0.031	0.035
	1.46	0.028	0.030		1.18	0.026	0.030
	1.50	0.021	0.026		1.20	0.020	0.025
	1.60	0.196	0.020		1.30	0.018	0.020

Options Markets:	Put options($/)		Put options($/)
	Strike	Bid	Ask		Strike	Bid)	Ask
	1.30	0.003	0.005		1.00	0.020	0.021
	1.40	0.005	0.010		1.10	0.022	0.024
	1.46	0.010	0.020		1.18	0.024	0.029
	1.50	0.020	0.030		1.20	0.029	0.031
	1.60	0.030	0.040		1.30	0.035	0.038

The treasurer keeps note that he can borrow and lend foreign currencies at the ask and bid rates,respectively. He also reminds himselfthat he has learned from his financecourses in the university: always buy at the ask and sell at the bid. He needs to prepare a memo

analysing currency hedgingfor the FinanceCommittee in two days addressing which strategy would be better: forward hedge? Money market hedge? Option hedge? He is considering five possible exchange rate scenarios for dollar-pound and dollar-euro in one year so that he can show his analysis to the Committee. These exchanges rates are: $1.30/, $1.40/, $1.46/,

$1.50/, $1.60/for dollar-pound and $1.00/, $1.10/,$1.18/, $1.20/, $1.30/for dollar- euro. After doing all the calculations, he wants to decide which hedging strategy would be preferable. First, he plans to find the outcomes of the forward and money market hedging,

then use the same forward rates as the strike exchange rates for options markethedging. After that, he plans to find the future spot rates that would make him indifferent between option and forward outcomes. He believes that this process would help him in identifying whether an option hedge would be helpful, given that options require up-front costs. He has prepared a few tables for the forward and options outcomes that can be used to understand the overall situation better:

Forward position outcome
Future Spot Exchange Rate (ST)	Unhedged Position	Hedged Position	Gains/Losses from Hedge
$1.30
$1.40
$1.46
$1.50
$1.60

Forward position outcome
Future Spot Exchange Rate (ST)	Unhedged Position	Hedged Position	Gains/Losses from Hedge
$1.00
$1.10
$1.18
$1.20
$1.30

Option marketoutcome
Future Spot Exchange Rate (ST)	Exercise Decision	Gross Dollar Proceeds	Option Cost	Net Dollar Proceed
$1.30
$1.40
$1.46
$1.50
$1.60

Option marketoutcome
Future Spot Exchange Rate (ST)	Exercise Decision	Gross Dollar Proceeds	Option Cost	Net Dollar Proceed
$1.00
$1.10
$1.18
$1.20
$1.30

You can also assist him by writing a memo with all the calculations in a structured way so that he can present the memo in the next Finance Committee meeting in two days.